(Bloomberg) The Obama administration asked the full U.S. Court of Appeals in Washington to reconsider a three-judge panel’s ruling that customers on the federal marketplace authorized by the health-care overhaul are ineligible for subsidies to buy insurance.

“The text, structure and purpose” of the overhaul “make clear that tax credits are available to consumers ‘regardless of whether the exchange on which they purchased their health insurance coverage is a creature of the state or the federal bureaucracy,’” government lawyers wrote in a request for a re-hearing, citing the dissent in the case.

The request, filed Friday, was widely expected after a 2-1 ruling on July 22 that struck down an Internal Revenue Service rule providing subsidies for needy customers on the insurance exchange run by the federal government. Later Friday, the appeals court ordered the plaintiffs to file within 15 days a response to the government’s motion.

Thursday, the plaintiffs asked the U.S. Supreme Court to hear the case, saying a ruling by the high court would end uncertainty about the IRS provision.

Richmond Split
The three-judge panel ruled last month that the language of the law, commonly called Obamacare, limits subsidies to eligible customers of state-run exchanges. If upheld, the ruling is a potentially crippling blow because only 14 states and the District of Columbia set up their own exchanges.

Hours after the court issued its July ruling, a three-judge panel in Richmond, Virginia, addressed the same issue and unanimously found that the IRS had discretion to write rules authorizing credits for both state and federal exchanges.

The judges’ votes broke down by party lines. In Washington, U.S. District Judges Thomas Griffith and A. Raymond Randolph, who voted to limit subsidies, were named to the bench by Republican presidents.

U.S. District Judge Harry Edwards, who dissented, was nominated by a Democratic president as were the three judges in Richmond.

If the government’s request for a re-hearing is granted, the Washington ruling would be vacated and the case would be re-argued before all 11 judges on the court.

Direct Appeal
Seven of them were appointed by Democrats, including four by President Barack Obama. In addition to the regular judges, Edwards and Randolph, both senior judges, would be allowed to participate because they ruled in the underlying case.

Sam Kazman, of the Competitive Enterprise Institute, which backed the Richmond and Washington challenges, questioned why the government isn’t appealing straight to the Supreme Court.
“It’s curious,” he said in a telephone interview. “You’ve got an issue that needs to be decided quickly.”

The Justice Department announced immediately after the July 22 ruling that it would seek review by the full appeals court. Emily Pierce, a department spokeswoman, declined to comment further on the request.

If the full Washington court decides that tax credits apply to state and federal exchanges, it would eliminate a split with the court in Virginia. Such divisions between courts sometimes influence the Supreme Court to hear a case.

Similar cases on tax credits are pending in Oklahoma and Indiana.

The case is Halbig v. Sebelius, 14-5018, U.S. Court of Appeals for the District of Columbia (Washington). The Virginia case is King v. Sebelius, 14-1158, U.S. Court of Appeals for the Fourth Circuit, (Richmond, Virginia).

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